Italian bonds drop as EU finance chiefs frown on Italian budget plans

Italy's longer-term financing costs rose to their highest since early 2014 on Tuesday after euro area finance chiefs gave the 'thumbs down' overnight to the country's budget targets for 2019 which had been unveiled just three days before.

As of 0846 BST, the yield on the benchmark 10-year Italian government note was rising by 10 basis points to 3.40%, having earlier hit an intra-day high of 3.44%.

Following Monday's so-called Eurogroup meeting, Portugal's finance chief, Mario Centeno, said that: "Recent announcements by the Italian government have raised concerns about its budgetary course."

Italy's budget had not been on the agenda for Monday, but by all appearances dominated the meeting, as Italy's economy minister, Giovanni Tria, tried to persuade his peers that they should be "tranquil".

According to ANSA, Tria had explained that "the situation of Italy was not on the agenda," yet the 2.4% deficit-to-GDP ratio unveiled by the government had "aroused concerns that must be faced immediately".

"We all agree what is at stake. It's up to the government to show it has a credible and sustainable budget. But the mathematics isn't hard, that's why I mentioned concerns."

European Commission President, Jean Claude Juncker, was in a similar frame of mind, saying: "One crisis was enough. After the toughest management of the Greece crisis, we have to do everything to avoid a new Greece - this time an Italy - crisis."

Centeno's remarks were also echoed by the European Union's Commissioner for Economic and Financial Affairs, Pierre Moscovici, who according to Bloomberg, which cited people familiar with the behind-closed-doors discussions, drew a parallel with a tennis match, saying one could discuss whether the ball was on the line, but not when it falls clearly outside it.

Adding fuel to the fire, according to the head of the budget committee in the lower house of the Italian parliament, Rome would not be facing its current spending problems if Italy still had its own currency.

In response, and before the start of the Eurogroup meeting, Moscovici pointed out to reporters how most Italians in fact supported the single currency, adding that it was also in their best interest to have a strong Eurozone and euro and vice-versa.

"The Italians themselves are very attached to the euro because they know that it protects them, so let's not feed some rumors, some thoughts that are really inappropriate."

The government in Rome was scheduled to present its budget plans to the EC formally in mid-October.